In April 2018 Binance, Bittrex, OKEx and other large cryptocurrency exchanges froze the deposits and put on hold the withdrawal of ERC-20 tokens because of the batchOverflow bug. While Vitalik Buterin argues that ERC-20 protocol can be trusted, we have collected a set of standards that are able to enhance or replace it.

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Cryptoassetsrank.com Published on Jul 02, 2018

In April 2018 Binance, Bittrex, OKEx and other large cryptocurrency exchanges froze the deposits and put on hold the withdrawal of ERC-20 tokens because of the batchOverflow bug. While Vitalik Buterin argues that ERC-20 protocol can be trusted, we have collected a set of standards that are able to enhance or replace it.

What is ERC-20 and why was it introduced?

The developers conduct ICOs and create tokens on the existing blockchain platforms. Over 95% startups are based on the Ethereum blockchain. That is why apart from the Ethereum cryptocurrency within one system there are thousands of other tokens with their own program code.

In the past, the developers used to upload all the codes into the Ethereum virtual machine. For the network to understand how to interact with the new tokens, additional codes were written. Such process took a lot of time, was labour-consuming and overloaded the network.

In 2015 Vitalik Buterin suggested using a standard ERC-20 or Ethereum Request for Comment. It is a set of rules and functions that the developers must follow in order to provide compatibility of coins and their easy transfer using a smart contract.

ERC-20 advantages and disadvantages

Advantages:

It facilitates the work of a smart contract. A classical scheme of a transfer is as follows: A transfers the coins to B → the system checks the smart contract → the nodes confirm the transaction → В receives the coins. With the introduction of ERC-20 the scheme becomes shorter: the smart contract simply changes the name of the token holder.

It facilitates getting listed on the cryptocurrency exchanges. Large cryptocurrency exchanges use ERC-20 standard, that is why the tokens that are compatible with this standard can be placed for trading without any additional adaptation of the code.

It is integrated with popular wallets. Almost all ETH wallets allow users to store ERC-20 coins. Among them are such wallets as MyEtherWallet, Mist, MetaMask, hardware wallets Ledger and Trezor.

It indirectly confirms that the ICO is honest. If the developers take care of an easy listing of the coins at the cryptocurrency exchanges and their compatibility with crypto wallets right from the beginning, it is most likely that their project is not just a plain scam.

Disadvantages:

It does not provide for a return of money. If a user sends the tokens to a wrong address or contract, they will remain at that address and it will be impossible to return them.

It is not aimed at issuing additional tokens and burning those tokens that have not been sold out during the initial coin offering.

All the tokens are interchangeable, which makes them unsuitable for some projects. For example, they are unsuitable for unique collectibles like CryptoKitties.

It is not possible to send transfers on behalf of an external service. That is why the tokens are not suitable for cryptocurrency exchange services and other projects of this type.

The users have to pay a GAZ fee for every transaction, including a token transfer and fulfilment of the smart contract functions. The exact amount of the fee is not known immediately, you can only set the top limit.

We have not included the batchOverflow bug into the list of disadvantages of this token standard because the developers are working on eliminating this vulnerability. The rest of the disadvantages do not prove that the standard is outdated. They just show that the ERC-20 tokens do not suit all the projects without exception. If you are ready to pay a transaction fee and always check the address before sending the transaction, you should be good to go.

ERC-223 for absent-minded users

The ERC-223 standard was created as an Ethereum improvement proposal. It was proposed after the users had lost over $375,000. It is the cost of the frozen coins that the users sent to the contract that did not identify them.

Since it is not possible to return a wrong transaction after it has been processed in the Ethereum blockchain, the ERC-223 developers proposed another solution of the problem. According to the ERC-223 standard terms, the coins are not sent, if the contract does not identify them.

ERC-721 for collectors

Ethereum Request for Comments 721 is a non-fungible token standard. According to its terms, each coin has a 256-bit number (a unique ID). On a practical level the differences are as follows:

ERC-20

ERC-721

All coins are identical and equally good. They can be compared to dollars of the same nominal value: all the banknotes replace each other without changing their value.

The coins cannot be replaced by one another because each of them has its own unique ID. They can be compared to collectors’ stamps or disks, among which there are some that are more valuable and other that are less valuable.

Each coin can be divided into parts like fiat dollars are divided into cents. It is convenient for payments.

The coins are not divided (like real collectibles that, if divided, will lose their value).

This standard was used in the startups like CryptoKitties, CryptoPuppies, CryptoPets and others.

ERC-621 for financial managers

Request for Comments 621 is an additional function, EIP for ERC-20 or ERC-223, that regulates the emission rules. Using this standard, it is possible to:

release additional tokens during an ICO, if the ICO organizers have underestimated the market and the project potential at the very beginning;

burn the non-released coins under the Proof-of-Burn consensus algorithm, if such terms of the initial coin offering were indicated in the white paper.

ERC-827 for cryptocurrency exchange sites

This standard is another Ethereum improvement proposal for ERC-20 and ERC-223. With its help you can transfer coins on behalf of an external service. It is suitable for cryptocurrency exchange sites, operator or magazine subscription-based services.

NEP-5 for thrifty users

ERC-20 and ERC-223 are taken as a basis and are improved not only within the Ethereum network. Based on them, the developers created the NEP-5 standard for the coins on the NEO platform. It was also created in order to make the coins compatible and to facilitate their transfer using a smart contract.

NEP-5 has the following advantages in comparison to the Ethereum standards:

Fast transaction processing. The platform can process 1,000 transactions per second. For reference: Ethereum processes only 20 transactions per second.

No fees. Any NEP-5 token transactions are free of charge, there are no transaction fees on the blockchain.

The standards with additional options have not yet become as widespread as the ERC-20 standard. In order to implement them, a broad-scale joint work of the Ethereum community and the community of other platforms, representatives of cryptocurrency exchanges and application developers is required.

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